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Hi, My Wife and I want to sell our 2 bed house, in which we have around 55k equity, in order to buy my parents 3 bedroom house for us to live in, which is valued at around 130k. The house is too big for my parents now and they want to move to rented sheltered accommodation. They owe around 36k on their mortgage and they have proposed to sell us their house under valued for around 75k. They will then be able to settle their mortgage and have a some pocket money left for holidays etc and we will have a 3 bed house for not a lot. My question is am I legally allowed to buy my mums house at this price? I have been told that it is illegal to buy/sell a house under its market value and it will raise and investigation by the HMRC. Is this true? I thought that the rule only applied if the house is valued at over the inheritance tax / stamp duty threshold, but everyone is telling me different things.. Please Help!

you can sell the house for whatever you want, Pair of semis across the road from me. One for sale for £190,000 the one next door has just been sold within the family for
£130,000. Of course if they are selling below market value to avoid supporting themselves that is a different matter. Regards bri

Hi no they are moving into rented sheltered accomodation and they will be paying their own rent using their own money - without any help from the state (other than their own state pensions). They will also be using the proceeds from the sale of the house towards the costs of rent etc.

You can purchase their house for any price agreed between yourselves, however you will need to pay stamp duty on the market value of the property. IIRC the stamp duty threshold is £125K - who has done the £130K valuations? Have you looked at current land registry sold prices? These will usually be lower (and arguably more accurate) than an estate agents valuation. If you need a valuation for mortgage purposes this might also be supplied to the inland revenue.

If either of your parents ever need residential care then selling their home undervalue may be seen as 'deprivation of capital' so they may not be entitled to state support. It is not illegal for your parents to make a gift to you in the manner you propose, the law would only come into play if your parents give away their assets in order to claim benefits, or supply fraudulent information on any application forms for benefits.

Thanks, things are getting clearer for us. Do you know if there is a time limit on them not being able to claim any benefits? For example they will have about £30k profit from the house sale which they plan to live off, pay rent and enjoy retirement. In reality this will prob last them around 5-7years. What would happen if they ever needed to claim benefits after this time? could we be liable for their rent / care charges or will they be able to claim benefits after this time? Can we lose our house?

Thanks, things are getting clearer for us. Do you know if there is a time limit on them not being able to claim any benefits? For example they will have about £30k profit from the house sale which they plan to live off, pay rent and enjoy retirement. In reality this will prob last them around 5-7years. What would happen if they ever needed to claim benefits after this time? could we be liable for their rent / care charges or will they be able to claim benefits after this time? Can we lose our house?

You would not lose your home as you will have bought it legally and you will not be liable for their care home charges. However your parents can be treated by the state as if they still have the money they have gifted to you, i.e. they may not be entitled to state support until they have spent all the notional profit from selling the house at market rate. That means you might have the Hobson's choice of seeing your parents destitute or helping them out financially.

Five to seven years is not very long, I think the state may take a dim view of your parents leaving themselves insufficient to live on. My understanding is each case is taken on it's merits, but the larger the gap between the gift and needing benefits the better. The lower the valuation of the property the less money your parents will be deemed to have gifted to you IYSWIM.

I assume your parents are already fairly old if they are going into sheltered housing? Have your parents considered selling their home at market value and then buying a sheltered housing place outright? This will not have to be sold whilst one is still living there, so your parents have a fair chance of being able to leave you something when they pass on.

Yes, they have thought about selling at full market value, but the whole point of us buying my parents house at a reduced cost is that we (my wife & I) need a 3 bedroom house for our family, but we can't afford to pay the going rate as prices are too high. As I lived in my parents (who are now both in their 70's) home for 25 years and my mum & dad want to see my family settled without money worries they offered to sell us the house for £75k.
We will mortgage 45k and give them 35k cash from the proceeds of our house sale. They will then use this money to live off - enjoy their retirement etc. They will also be using their state pensions to pay rent etc. My worry, now it has been brought to my attention, is if anything ever happens to them and they needed care. From what I understand now I could be liable for these costs which we couldnt afford.

however you will need to pay stamp duty on the market value of the property. IIRC the stamp duty threshold is £125K - who has done the £130K valuations?

”

Er....No. You pay (or don't pay SDLT) on the actual price paid.

It is only when there is some artificial scheme to avoid SDLT on what would otherwise be an arms length transaction that the value comes into play,.e.g. an exchange of properties worth £300K and £175K where there would be £9000 and £1750 SDLT payable the people concerned might decide to make the prices £125K and £250K (same difference) - total SDLT then only £2,500. You can't do that and HMRC would then investigate.

RICHARD WEBSTER

As a retired conveyancing solicitor I believe the information given in the post to be useful assuming any properties concerned are in England/Wales but I accept no liability for it.

You would not lose your home as you will have bought it legally and you will not be liable for their care home charges. However your parents can be treated by the state as if they still have the money they have gifted to you, i.e. they may not be entitled to state support until they have spent all the notional profit from selling the house at market rate. That means you might have the Hobson's choice of seeing your parents destitute or helping them out financially.

Five to seven years is not very long, I think the state may take a dim view of your parents leaving themselves insufficient to live on. My understanding is each case is taken on it's merits, but the larger the gap between the gift and needing benefits the better. The lower the valuation of the property the less money your parents will be deemed to have gifted to you IYSWIM.

I assume your parents are already fairly old if they are going into sheltered housing? Have your parents considered selling their home at market value and then buying a sheltered housing place outright? This will not have to be sold whilst one is still living there, so your parents have a fair chance of being able to leave you something when they pass on.

Seems to me that the transaction at under value is being done for right reasons for both parties. i.e parents want to see their kids sorted and they have a little nest egg to last them say 6 years.

Can't see this being a transaction that could be attacked too strongly for deprivation of assets. I think a letter lodged with the family solicitor who is dealing with the sale could help setting out why its being sold at whatever price

My main concern would be that your parents are in their 70 's and only thinking of a nest egg for 6 years or so? personally I think the value is too low. What happens if their rent goes up or one of them dies and they cannot afford the rent on their own

I think your parents stand to come out a lot worse off in this. I completely understand that they want to see your family settled and happy but really you shouldn't take advantage of this. They could end up in quite a pickle when the money runs out and you've already said you wouldn't be able to pay for their care so where would that leave them? How bad would you feel living in your parents house that they pretty much gave you and watching them struggle?

I think you need to find another solution and so do your parents, separately. You should live somewhere you can actually afford, even if it means being a bit cramped or in a different area. Your parents should sell their house at its actual value and use that money to fund their whole retirement, not just 6 or 7 years of it.

You've told us what equity you have, but how much mortgage do you have?

I know your parents have set this price but perhaps you could do the right thing and pay them more. As it stands you are looking at mortgaging £45k and paying them £35k when you've got £55k equity - you are keeping £20k for your own spends? It doesn't sound like much of a nest egg for them and they may genuinely start to struggle soon after that runs out. Or maybe you will then be in a position to help them out?

Personally I would dissuade them from this idea. Does your income really only allow you to borrow £45K and be comfortable?

If they had loads of savings then I could understand them helping you to have no financial worries if they didn't either. As it stands they could face a very stark future. I have relatives still going strong in their 90s.

As someone whose family runs care homes, you need to be very careful here. Rest home fees start at around £350 per person per week and nursing home fees can be £500-£800 per week i.e. damn expensive.

If in the next few years, your folks went into a care home, and the cost was circa £36k per annum, it would not be long before their funds were exausted and they had to ask the DSS to pay. The DSS these days are getting pretty hot on sniffiing out attempts by people trying to shift assets (almost always houses) before requiring long-term care - in this case the taxpayer is potentially being "ripped off" by £55k). Conseuqently, they may refuse to pay the fees or seek to overturn the sale.

Ironically, and rather interesting from a social and moral perspective, the best way to put your assets out of reach of the state....is to spend it! It is not unknown for OAPs to blow fortunes on cruises etc just to as to get their assets below the required level for state support. Not much of an incentive to save!

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